How to improve this rendering so it looks more like the target image? (Disaster)
When I look at his ankles in the target image, they do not seem to be proportioned like normal human ankles -- they look MUCH too thick. I suspect the creators of that figure ran into the same problems you did with trying to generate a realistic looking figure on such a small scale and compensated by not using anatomically accurate proportions. 

So, if you want to try to use Blender's environment to make your figure, I would recommend finding proportions that might not look correct in the 3D Viewport or in MakeHuman, but that do look correct when rendered at 32x32.

It is also possible that the original creators did not use a 3D model rendered at 32x32, but rather just painted the image by hand, pixel by pixel, or perhaps used some process other than rendering from a 3D environment.

Another possibility is to render your figure at a much higher resolution so you get all the details you want, and then shrink it down &amp; selectively edit it in Photoshop.